URGENT!! ASAP!! Case Study 3 (40 marks)

After conducting a market research that cost $20,000, Hogwarts Ltd is considering the purchase of a new machine for their printing business. The machine will cost $440,000 and Hogwarts will need to spend another $10,000 to install the machine. The machine will be installed in a building the company owns. This building is currently being rented out at $30,000 a year and the next payment due at the end of one year.

The new machine will increase the companys revenue by $250,000 per year but the variable costs will also increase by $35,000 per year and fixed costs will increase by $10,000 per year. The machine will be depreciated on a straight-line basis to zero salvage value over the 4 years life of the project. Hogwarts believes it can sell the machine at the end of 4 years for $20,000.

The required payback of the company is 2 years and the required rate of return is 10% p.a. The company tax rate is 30%.

As a financial manager of the company, youre conducting a capital budgeting analysis of this project.

1. Calculate the tax effects and the incremental cash flows of the new project for each year (Y₀ to Y₄ inclusive).
2. Calculate the payback period of the project. (Show answer correct to 2 decimal places.)
3. Calculate the net present value (NPV) of the project. (Show answer correct to nearer cent.)
4. Calculate the present value index of the project. (Show answer correct to 4 decimal places.)
5. Should the company accept this project? Why or why not?